Current BIR:CA Stock Info

Birchcliff Energy creates a contiguous core asset base with purchase from Encana

Birchcliff Energy (ticker: BIR) announced that it will purchase all of Encana Corporation’s (ticker: ECA) Gordondale area, creating one contiguous block of assets in Birchcliff’s primary focus area of Pouce Coupe/Gordondale within its one core area, Alberta’s Peace River Arch.

Birchcliff agreed to purchase the 54,000 net acres from Encana for C$625 million, according to the company’s press release.

Forecast production from the assets for the first half of 2016 is approximately 26 MBOEPD (41% oil and NGLs), with a base production decline of about 20%, the company said. Proved reserves are 105,661 MBOE (12% light and medium crude oil, 27% NGLs, 60% shale gas and 1% conventional natural gas), and proved plus probable reserves of 191,133 MBOE (13% light and medium crude grades, 26% NGLs, 60% shale gas and 1% conventional natural gas).

Source: Birchcliff The assets will target

Source: Birchcliff The assets will target the Doig and Montney

On a production basis, the company paid $24,038 per flowing BOEPD, and on a production basis, the company paid $5.92 per BOE of proved reserves and $3.27 per BOE of proved plus probable reserves. Birchcliff reported the PV-10 value of the proved reserves as $636 million.

The assets include 42,862 net acres of developed lands and 11,344 net acres of undeveloped lands, with average working interest of 57% in developed lands and 67% in undeveloped lands. Because the assets connect Birchcliff’s existing acreage, the company will be able to eliminate drilling buffers, allowing for optimal well development planning and reservoir drainage as well.

BIR Acquisition of ECA Assets in Alberta

Also included in the sale are owned and operated light oil batteries, compressor stations and an existing network of gathering infrastructure, which will allow the company to continue growing with minimal midstream investment.

The infrastructure included with the assets include:

  • two light oil batteries with a combined handling capacity of approximately 20,000 bbls/d of oil (100% working interest);
  • a non-operated working interest of approximately 10% in the gas plant located in the Progress area which has a processing capacity of 135 MMcf/d and in which the Corporation has an existing non-operated working interest of approximately 3%; and
  • an extensive network of sour gas gathering and compression systems with capacity of approximately 65 MMcf/d (100% working interest).

Also included in the deal are secured long-term third party processing, transportation and sale agreements, including firm transportation capacity on Pembina Pipeline Corporation’s (ticker: PBA) pipeline system and access to firm fractionation capacity at Pembina’s fractionation facilities at Redwater, Alberta.

Financing the acquisition

On June 21, Birchcliff said the deal will be partially funded through a $530 million bought deal equity financing and a concurrent $18.75 million non-brokered private placement subscribed for by Seymour Schulich, a Canadian businessman and investor with experience in the oil and gas industry. Aggregate gross proceeds from the deal will be $548.75 million.

The company announced on June 22, that in connection with its June 21, 2016 announced bought‐deal financing it has entered into an revised agreement with the syndicate of underwriters co‐led by National Bank Financial Inc., Cormark Securities Inc., GMP Securities L.P. and Scotia Capital Inc., pursuant to which the underwriters have agreed to increase the size of the financing.

Birchcliff will now issue 101,520,000 subscription receipts at $6.25 per subscription receipt for gross proceeds of $634.5 million (the “Upsized Offering”). The over‐ allotment option will be reduced to 6,000,000 subscription receipts at $6.25 per subscription receipt for additional gross proceeds of up to $37.5 million (the “Over‐Allotment Option”), for total gross proceeds of up to $672.0 million (collectively, the “Brokered Financing”).

Combining the proceeds from the upsized offering and the full exercise of the over‐allotment option with the proceeds from the previously announced non‐brokered private placement of 3,000,000 subscription receipts by Mr. Seymour Schulich (or entities controlled by him) at $6.25 per subscription receipt (the “concurrent private placement”) would provide total gross proceeds of up to $690.8 million to the corporation, the company said in a news release issued June 22, 2016.

Birchcliff increases guidance

As a result of the acquisition, Birchcliff has increased its annual average production guidance for this year to 50 MBOEPD at its midpoint from 40.5 MBOEPD at its midpoint.

Pro forma the deal, Birchcliff’s commodity mix will be 77% natural gas, 10% light oil and 13% NGLs, giving the company a greater focus on liquids. In its press release, Birchcliff said it will invest in the most economic natural gas weighted or oil and liquids weighted drilling locations to maximize funds flow and rates of return depending on the prevailing commodity price environment moving forward.

BRI 2016 Updated Guidance

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